**Pound to US Dollar Exchange Rate Forecast: GBP Dented Following UK, US PMIs**
*By Tim Clayton | Source: ExchangeRates.org.uk*
As the currency markets continue to react to economic data and policy expectations, the pound sterling (GBP) has experienced renewed volatility against the US dollar (USD), largely in response to the latest PMI releases from both the UK and the US. The GBP/USD exchange rate is now feeling the pressure, as divergent economic performances and policy outlooks impact future price action.
## Overview: Sterling Faces Renewed Headwinds
The pound’s performance this week has been marked by a slide against major peers, with the US dollar in particular benefiting from robust data. After a period of relative stability and occasional gains for GBP/USD, recent releases have highlighted the challenges facing the UK economy relative to its American counterpart.
– The latest PMI data, which provides a real-time snapshot of economic activity based on surveys of purchasing managers, signaled a dichotomy in economic fortunes.
– While the UK economy appears to be showing further signs of slowdown, the US economy continues to demonstrate resilience.
– These data releases have prompted renewed speculation about the Bank of England’s and the Federal Reserve’s future policy moves.
## UK PMI: Weakness Undermines Sterling
The UK flash composite PMI for August painted a grim picture for the British economy. Falling below the key 50 threshold, the data suggested that private sector output contracted at its fastest rate since January 2021, when the nation was still grappling with pandemic restrictions.
### Key Details from the UK PMI Report:
– The flash composite PMI for August registered at 47.9, notably below July’s figure of 50.8 and under consensus forecasts.
– The services sector, normally a key support for the UK economy, fell into contraction territory at 48.7.
– Manufacturing continues to act as a major drag, with factory output and new orders both falling sharply.
– Forward-looking indicators, such as future business expectations, signaled a slowdown in hiring and investment intentions.
The message from the UK’s PMI survey was clear: economic activity is faltering, and the risk of recession appears to be rising. Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, summarized the mood by stating that business activity witnessed its fastest decline since lockdowns, as rising interest rates and cost-of-living pressures hit demand across the economy.
### Implications for the Bank of England
– The data increase the prospect that the Bank of England might tone down its recent hawkishness, or even opt for a pause in its current tightening campaign.
– Investors began to scale back their expectations for future interest rate increases, which in turn eroded GBP’s yield support.
– Market-pricing currently assigns a lower probability to further BoE hikes in 2024, especially given fragile consumer and business confidence.
## US PMI: Resilience Supports the Dollar
In contrast to the UK, the US flash composite PMI for August exceeded market forecasts and reaffirmed the dominant narrative of American economic resilience.
### Highlights from the US PMI Release:
– The flash composite PMI came in at 50.4, up from 47.9 previously, and safely in expansionary territory.
– Both the services and manufacturing readings showed improvement, with service sector output especially robust.
– The employment component remained strong, underlining the health of the labor market.
– Importantly, the surveys pointed to persistent price pressures, particularly in services, fueling speculation that the Federal Reserve could keep rates higher for longer.
The positive tone in the PMI data reinforced the notion that the US economy can withstand elevated interest rates for a longer period, thereby bolstering USD demand across the currency spectrum.
### Federal Reserve Policy Outlook
– The latest data adds credibility to the belief that the Fed will stick to a “higher for longer” message.
– Markets continue to price in the possibility of at least one more rate hike in 2024, driven by sticky
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